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Oops, there was an error sending your message. Please try again later. If I die, what happens to my small business? If you and your partners didn't cover death in the operating agreement, state law determines what happens when one of the members dies. That's why an LLC operating agreement is essential: State law may not steer things in a direction anyone wants to go. Even if state law delivers your membership to the person you want to receive it, an operating agreement is still a better alternative.
That avoids the time and costs of going through probate. Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs.
His website is frasersherman. Share It. The membership interest passes to your estate and eventually to your heir. Depending on the agreement they may assume your role in managing the company. This has drawbacks as the other members may not welcome the newcomer. The other members buy out your membership. This gives your heirs extra income and avoids the problem of a new, unwanted member.
Depending on the agreement, the buyout may be optional or it may be a mandatory requirement. If there is no operating agreement, or if the operating agreement is silent about what to do when a member dies, state law spells out what to do next.
In some states, an LLC automatically dissolves upon a member's death, but most jurisdictions do not require a multiple-member one to dissolve when a member dies. In states that forbid an LLC member to transfer their management interest without the other members' approval, the member can leave only their financial interest to their beneficiaries in their will, thereby preventing the heirs from participating in the company.
Some states permit the deceased's executor to take over the management interest to the extent necessary to settle the estate. Your operating agreement's value extends far beyond the circumstances of an LLC member's death. An effective operating agreement is critical to the success and longevity of the company. If you are a member of a newly formed company, preparing an operating agreement is a critical first step to business success.
An experienced attorney may be able to help you get started. This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law. By Laura Payet. What the Operating Agreement Says An LLC's operating agreement establishes how the business runs; it describes which members have management responsibilities and how to distribute profits and losses.
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